Banking giant HSBC has announced a takeover of the UK subsidiary of Silicon Valley Bank (SVB) after the U.S. bank failed last week, triggering concerns about the falloff affecting the UK’s tech sector.
Santa Clara-based SVB failed on March 10, with California regulators ordering the firm to shut down and appointing the Federal Deposit Insurance Corporation (FDIC) as the receiver.
On March 11, the Bank of England (BoE), the UK’s central bank, announced that SVB UK would enter insolvency.
The UK’s Chancellor of the Exchequer Jeremy Hunt warned that a collapse of SVB UK would pose serious risks to the country’s technology and life sciences sector, many of which bank with SVB.
On March 13, HSBC UK announced that it is acquiring SVB UK for £1 ($1.21).
“The assets and liabilities of the parent companies of SVB UK are excluded from the transaction. The transaction completes immediately. The acquisition will be funded from existing resources,” HSBC said in a March 13 announcement.
As of March 10, SVB UK had loans of around £5.5 billion ($6.6 billion) and deposits of around £6.7 billion ($8.08 billion). SVB UK’s tangible equity is expected to be around £1.4 billion ($1.69 billion).
The “final calculation of the gain arising from the acquisition will be provided in due course,” HSBC said. The bank will update shareholders about the acquisition at its Q1, 2023, results on May 2, 2023.
UK Crisis Situation
After the BoE announced that SVB UK would enter insolvency, the Coalition for a Digital Economy—a nonprofit that campaigns for policies to support digital startups in the UK—said in a statement that the situation could have a “significant impact” on the country’s tech startup ecosystem.
“We know that there are a large number of startups and investors in the ecosystem who have a significant exposure to SVB UK and will be very concerned,” the statement said.
The situation forced over 40 companies listed in London to post updates about their exposure to the collapse of SVB. Medical testing company Diaceutics announced it had £22 million ($26.5 million) in accounts at SVB. Lung disease firm Polarean Imaging said that $12.4 million in cash was held through SVB.
The shares of both firms did not trade at the Alternative Investment Market—a sub-market of the London Stock Exchange—on Monday. The vast number of businesses declared little to no direct impact from the SVB collapse.
“This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC. Deposits will be protected, with no taxpayer support. I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise,” Hunt said in a March 13 Twitter post.
Speaking to reporters on Monday, Hunt said that the UK was facing a situation where the country’s most strategic companies could have been wiped out. Hunt insisted that the SVB UK crisis did not pose any risk to the country’s financial system, which he claimed is well-capitalized.
US Situation, International Reverberations
On Friday, the FDIC announced that it will cover all insured deposits of SVB clients up to $250,000 per depositor.
On Sunday, the U.S. Treasury Department, FDIC, and Federal Reserve declared that all SVB clients will be protected. Depositors at SVB are expected to gain access to their money on Monday, including those whose holdings exceed the insurance limit of $250,000.
Late Sunday, the Federal Reserve announced an emergency lending program that will lend freely to the banking system so that customers will have confidence in accessing their accounts whenever necessary. This is expected to prevent a wave of bank runs.
The Treasury has allocated $25 billion to offset losses incurred under the Fed’s newly announced emergency lending plan. SVB has over $200 billion in assets and is the second-biggest bank failure in American history.
On March 13, the FDIC announced that it had transferred all deposits, both insured and uninsured, as well as assets of SVB, California, to a new “bridge bank” to protect depositors. The agency also named Tim Mayopoulos as the CEO of SVB. Mayopoulos is the former president and CEO of the Federal National Mortgage Association.
Internationally, Germany’s financial regulator has imposed a moratorium on the German branch of SVB. In Canada, the country’s banking regulator has temporarily seized assets of SVB’s Canadian branch.
In Asia and Europe, bank stocks fell on Monday as the SVB shutdown cast a shadow on world markets. Though U.S. banking shares saw a brief pre-market rally after authorities announced measures to contain the contagion, the momentum has failed to hold on.
